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AP Microeconomics 3.3 Long Run Production Costs Questions

Analyze long-run production choices by calculating LRATC and identifying economies of scale, diseconomies, constant returns, and efficient scale.

Syllabus
Effective Fall 2022
Course
AP Microeconomics

Exam points

  • compare proportional changes in all inputs and output to classify returns to scale
  • calculate LRATC and use its change with output to classify economies or diseconomies
  • interpret LRATC and SRATC curves to locate the firm's minimum efficient scale
  • explain how coordination difficulties can raise LRATC as a firm expands output
  • use declining LRATC over market demand to identify natural-monopoly cost conditions

Covered syllabus points

PRD-1.A—a. Define (using graphs where appropriate) key terms and concepts relating to production and cost. b. Explain (using…—Topic 3.3

Question 1

[Maximum number: 2]

Deskward is a typical profit-maximizing firm that produces and sells wooden desks in a constant-cost, perfectly competitive market that is in long-run equilibrium.

Question (a)

(a)

Deskward also produces chairs. Deskward increases its production from 500 chairs to 600 chairs, and its long-run total cost increases from $80,000 to $108,000.

[ 2 ]

Question (i)

(i)

Calculate Deskward's long-run average total cost of producing 500 chairs. Show your work.

[ 1 ]

Question (ii)

(ii)

As Deskward increases production from 500 chairs to 600 chairs, is Deskward experiencing economies of scale, diseconomies of scale, or the efficient scale? Explain using numbers.

[ 1 ]
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